Labour Reforms to Accelerate India's Journey to a $30 Trillion Economy by 2047

A study prepared for the NCAER India Policy Forum has identified labour market reforms as one of the most significant factors that could accelerate India's long-term economic growth, as per The Moneycontrol news report. 

According to the paper, India's GDP could reach $27 trillion by 2046-47 if labour market distortions are reduced. Without such reforms, the economy is projected to reach $21.91 trillion, leaving it around $8 trillion short of the country's $30 trillion target. 

Labour Reforms Seen as Key Driver 

The paper, India's Development Aspirations: A Macroeconomic Perspective, was authored by Alok Johri of McMaster University and Amartya Lahiri of the University of British Columbia. 

It identifies labour-market distortions as the biggest constraint on India's potential output, stating that reducing these barriers would encourage workers to shift from agriculture to higher-productivity industrial and services sectors. 

Productivity Growth Remains Critical 

The study estimates that India would require economy-wide Total Factor Productivity (TFP) growth of around 6.1% annually for 24 years to achieve a $30 trillion economy. 

TFP measures how efficiently labour and capital are used to produce goods and services. The authors noted that reducing labour market distortions could significantly improve the productivity growth needed to move closer to the target, although no single reform alone would be sufficient. 

Existing Reform Measures 

The paper highlighted that the government has already consolidated 29 labour laws into four Labour Codes covering wages, industrial relations, social security, and occupational safety and working conditions. 

It also noted that around 30 States and Union Territories have published draft rules under the new codes, while nearly 20 have implemented the changes.  

The reforms are intended to simplify compliance, modernise labour regulations, improve ease of doing business and safeguard workers' rights. 

Productivity Challenges Persist 

According to the study, India's economic growth since liberalisation has largely been driven by capital accumulation, while TFP growth remained subdued and turned negative after 2016. 

Compared with Brazil, China and South Korea at similar stages of development, India recorded slower GDP and productivity growth. Even Brazil achieved faster TFP growth than India between 2000 and 2022. 

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Conclusion 

The study identifies weak productivity growth and labour-market frictions as India's two major economic challenges. It concludes that moving closer to the Viksit Bharat vision and the $30 trillion economy target will require sustained productivity gains alongside comprehensive labour market reforms. 

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